Global stocks rebound slightly off Friday's downside

Fundamental View

This week is relatively busy, save for the extremities of the calendar. Tuesday to Thursday has data aplenty as we have the main data sets from Europe. However the main events for this week take place on Wednesday as we see both the preliminary round of the Greek Presidential Elections and also the FOMC meeting for December. This is an important event as market participants look to the Fed to see whether they will change their rhetoric surrounding the “considerable amount of time” clause attached to their interest rate level. The “considerable time” has been priced in by the majority of market participants to be around the 6 months mark after the end of QE, as stipulated by Yellen in her accidental comment earlier this year. Any change in the policy language would therefore force a re-pricing of the rate hike forecast. With data printing at high levels, with the Non-Farm Payrolls for last month at 321,000 and Michigan confidence at a 7 year high, it is more likely than not that we will see the change in language. We have also seen the result of the Japanese elections with Abe securing another term to continue his economic and fiscal reforms. There was, however a 52% participation rate, which is a multi-year low. The Nikkei sold off slightly on the news, with market participants showing some concern about Abe’s continuation of policy

Today’s View

This morning global stocks have been trading in positive territory, which is a small rebound off Friday's downside into the US close. We embark on the final full week of the year with attention on Tuesday's packed economic data calendar and Wednesday's FOMC meeting and Greek Presidential election vote. The other issue is trying to decide direction for crude oil after the recent savage downside. Over the weekend the UAE oil minister continued the recent rhetoric spewing out of OPEC, which is that they are not interested in cutting production. But this is not new and crude prices have bounced $2 off the $56 handle that was tested overnight. Overall, we expect a quiet day with preference for small rebounds for oil and the S&P as markets pause for breath. This morning is fairly light on data with no real headlines of note to assimilate into today’s calendar. This afternoon we see Empire State Manufacturing with an expected reading of 12. This is the first data-point for the month of December so is an important yard-stick for the month. We also have Industrial Production, expected 0.6% MoM. The US Dollar endured some persistent profit taking last week and we feel this story maybe near its end. Therefore, given that recent economic data has been so strong we expect EURUSD to remain under modest pressure to the downside throughout the afternoon

Alternative View

Be aware that the traditional correlations have broken down of late and that the strategies presented reflect current market fundamentals and assume data prints in-line with our expectations.